ULC

Common Interest Ownership Act Summary

Introduction

The Uniform Common Interest Ownership Act (UCIOA) was originally promulgated in 1982 by the National Conference of Commissioners on Uniform State Laws (Uniform Law Commissioners or ULC).  It is the act that succeeds and subsumes the earlier Uniform Condominium Act (1977) (1980), the Uniform Planned Community Act (1980), and the Model Real Estate Cooperative Act (1981).  UCIOA is a comprehensive act that governs the formation, management, and termination of a common interest community, whether that community is a condominium, planned community, or real estate cooperative.  It also provides for disclosure of important facts about common interest property at sale to a buyer, including resale disclosure for any sale after the initial sale by the developer of the property; for warranties of sale; for a buyer's recission rights in a sale contract, and for escrow of deposits made to secure a sale contract.  These are the four principal elements of consumer protection under UCIOA.

In 1994, the ULC has promulgated a series of amendments to UCIOA.  These amendments do not change the general format or structure of UCIOA.  They reflect the experience in states that have adopted UCIOA or one or more of its predecessor acts, and analyses that have appeared, occasionally, in the scholarly literature.  Both actual experience and scholarly commentary have affirmed and reaffirmed the basic structure and content of UCIOA.  These amendments are designed to enhance its basic effectiveness.

This summary is intended to highlight the most important of these amendments.  A broader description of UCIOA is available in an earlier summary prepared in 1982.  There is substantial literature, as well, available to anyone who wants to study the whole of UCIOA in more detail.

Non-Residential Common Interest Communities

In its original form, UCIOA does not apply to non-residential planned communities, unless the declaration expressly makes such a planned community subject to UCIOA.  Non-residential condominiums and real estate cooperatives are subject to original UCIOA.  The amendments provide, initially, that UCIOA does not apply to any non-residential common interest community, unless there is an election to come under it in the community's declaration.  But amended UCIOA also, allows an intermediate election to developers to come under certain provisions of UCIOA without adopting the whole of this Act.  Original UCIOA provided for an all or nothing election.

The intermediate position allows the developer to elect to have three useful provisions only apply to non-residential communities: the provision that prevents taxation of units both to the association and to unit owners (the double tax problem); the provision that governs the applicability of local ordinances, regulations and building codes; and the provision governing the taking of community property by an act of eminent domain.  Of course, the developer may elect to have the whole of UCIOA apply to the community, as well.

These provisions increase UCIOA's utility to developers, and accord better with commercial real estate practices.  The intermediate election of provisions overcomes a problem in communities that otherwise would want to be excluded from the provisions of UCIOA, because it is not possible to draft appropriate provisions in the declaration to deal with the issues addressed in the relevant three sections.

Use and Occupancy Restrictions

Original UCIOA does not provide for a clear distinction between use and occupancy restrictions in a common interest community.  Use is more fundamental.  Can a unit be used for something other than a residence, and if something else, how far may a community go in restricting the other use?  Use restrictions must be stated in the declaration, and may be amended only upon unanimous consent of all unit owners under original UCIOA.

Occupancy restrictions are less rigorous in character, going to such issues as number of occupants in a unit and whether there can or cannot be pets.  In original UCIOA, occupancy restrictions must be in the declaration, but are subject to the voting requirement stated in the declaration or under UCIOA for generally amending the declaration.  Unanimous consent is not required to change occupancy restrictions.

The new amended scheme provides greater clarity and flexibility to the common interest community.  Amended UCIOA requires only that alienation restrictions be stated in the declaration.  All else is permissive.  Whatever is placed in the declaration may be amended by a vote of at least 80% of the unit owners.  Lesser restrictions may be addressed in the rules of the community.  The unit owners' association has the power to adopt rules to "prevent any use of or behavior in residential units which violates the declaration or adversely affects the use and enjoyment of other units or the common elements by other unit owners..."  This measure reserves owner's rights to conduct themselves in any way that does not affect other owners' use and enjoyment.  If the community wants more onerous restrictions, they will have to be stated in the declaration, reflecting a broad community desire for such restrictions.  Also, existing use and occupancy may not be impaired by amending the declaration.  So individual rights are protected in a democratic context with these new amendments.

Leasing of Units

Under amended UCIOA, the rules of the community may also govern leasing of units so long as the rules meet the current underwriting requirements adopted by institutional lenders who regularly lend money for first mortgages on units or purchase such mortgages.  If a community wants to place further restrictions upon leasing of units, they must be added to the declaration.  Original UCIOA has no such provision.

A question that UCIOA does not currently address that is associated with the issue of leasing is the ability of associations to enforce the community rules against tenants leasing from owners.  The amendments expressly make tenants subject to the rules of the association, and subject to enforcement by the association.  Tenants may be liable for unpaid fines and assessments due to the association.  The association may enforce the lease against the tenant.  These rules substantially enhance the association's power over leased units in a common interest community.

Fiduciary Responsibilities of Directors and Officers

Original UCIOA provides that executive board members and officers are subject to the standards of a fiduciary for the unit owners if appointed by the declarant (original developer), but are held only to a standard of ordinary and reasonable care if elected by the owners.

The precise application of this standard in any case has been in considerable doubt.  In the amendments, the statement is made considerably more precise.  Members of a board and officers appointed by a declarant are subject to the standards applicable to a trustee in a trust.  This is the highest fiduciary standard.  For elected board members and officers the standard becomes that of an officer or director of a not-for-profit corporation.  This standard reflects the not-for-profit character of a common interest community and the corporate quality of its governing body and the business it must conduct.  It means that the business judgment rule will apply to the decisions of the officials of a common interest community.

Liability of Unit Owners

Original UCIOA is not very clear with respect to the liability of unit owners for negligence committed in the common elements of a condominium community.  Although it was always intended that owners would not be jointly and severally liable for injuries incurred on the common elements in condominiums, some cases have found joint and several liability.  Neither cooperative communities nor planned communities have the same problem.  In such communities, under original UCIOA, there is no joint and several liability for unit owners.  The adoption of new provisions clearly remedies this deficiency for condominiums.  However, there is and never has been immunity for tortuous injury that a unit owner directly causes.

Alternate Dispute Resolution

The UCIOA amendments expressly authorize alternate dispute resolution for common interest communities.  Agreements to submit disputes to any form of binding or non-binding alternate dispute resolution are expressly valid under the amendments.  The association has the express power to require, by regulation, that disputes between the Board and any unit owners and disputes between unit owners be submitted to non-binding alternate dispute resolution as a prerequisite to initiating any judicial proceeding.  Original UCIOA makes no explicit reference to alternate dispute resolution in any context.

Conclusion

There are a number of other amendments that clarify and simplify the real estate components of UCIOA.  The aggregate of all these amendments is a better UCIOA that serves the people who are governed by its provisions.  The interests are many those of developers, the association of unit owners, creditors of the developer, the association, and the unit owners.  Amended UCIOA balances these interests better than the original does, and should be considered in every jurisdiction that has not already adopted it in the United States.